Subsidy regime ‘regressive’, direct cash transfer key to low outgo

Pitching for direct transfer of subsidies, the Economic Survey 2014-15 has said the outgo on food, fuel, power, fertilisers and railways amount to a staggering Rs 3.77 lakh crore in 2014-15, but reach only a few of the targeted poor.

businessUpdated: Feb 28, 2015 01:52 IST

HT Correspondent Hindustan Times

Pitching for direct transfer of subsidies, the Economic Survey 2014-15 has said the outgo on food, fuel, power, fertilisers and railways amount to a staggering Rs 3.77 lakh crore in 2014-15, but reach only a few of the targeted poor.

“Price subsidies are regressive. By regressive, we mean that a rich household benefits more from the subsidy than a poor household,” according to the survey.

It also added that price subsidies have formed an important part of the anti-poverty discourse in India, but a closer look at it reveals why they are not the government’s best weapon.

Implementing the direct cash transfer regime will take time but it should not slow down the pace of reforms, the survey said, while raising a question: “In the interim, is the goal of maintaining subsidies while cutting leakages achievable?”

Pointing out loopholes in the current subsidy regime, the survey pointed out that government spent about Rs 1,29,000 crore on food subsidy in 2014-15, but 54% wheat, 48% sugar and 15% rice allocated under the public distribution system was lost as leakages.

Similarly, the Centre spent close to Rs 74,000 crore on fertiliser subsidy, but “Urea and P&K manufacturers derive most economic benefit from the subsidy.”

Though the government has started the direct benefit transfer (DBT) scheme for LPG subsidy, the bottom 50% of households only consume 25% of LPG.

Similar is the case with the Indian Railways, where the government fiscal expenditure due to subsidised passenger fares is Rs 51,000 crore, but the bottom 80% of households constitute only 28.1% of total passengers.

The survey has also pointed similar leakages and loopholes in case of kerosene, pulses, electricity and water.

Rationalisation of subsidies and better targeting of beneficiaries through DBT would generate part of the resources for public investment, it said.